Alibaba set to increase its O2O offering with a 19.99% stake in Suning Commerce

Alibaba’s strategy to integrate brick-and-mortar stores into its business model has become more prominent over the coming weeks when it was announced on 10th August that it would be investing $4.6bn (19.99% stake) in the Chinese electronics retailer - Suning Commerce Group Co Ltd.

Merging the online-to-offline (O2O) market has been a promising business model for many retailers who want to capitalize on the added value that it brings to both consumers and the increased growth rates for the business itself.

For Alibaba, it’s investment in Suning would allow consumers to visit one of the 1,600 outlets in China to either examine a product in person before making a purchase or to speak with one of the customer services advisors to gain deeper insight into a particular product. Consumers can then make purchases via Alipay at a later date once they are satisfied with the product. It is proposed that Alibaba will integrate a new purchasing channel within its Tmall website so that consumers can make payments.

Other synergies that have been highlighted include Suning’s 3,000 after-sales service locations and an additional 5,000 affiliates that would be available to Alibaba’s customers. The collaboration between online and offline businesses has become somewhat of a growing trend. “This new alliance brings forth a new commerce model that fully integrates online and offline” Jack Ma commented.

Alibaba’s position within the e-commerce market is likely to see additional growth following this investment into Suning. JD.com which is Alibaba’s primary competitor in the industry is likely to face increased competition. However, JD.com remained unperturbed stating that with their superior service, reputation and fast delivery speed they are a key differentiator which is hard to duplicate.

Recent announcements on Monday 10th August by Alibaba Chief Executive Daniel Zhang stated that the business would consider additional deals with physical stores beyond electronics providing the stores bring in “additional customers”. Zhang insisted that Alibaba’s investment into Suning did not reflect any considerable change to the existing business strategy and that Alibaba would remain an online platform with an O2O presence. “We are trying to build an integrated online-offline platform for both customers and merchants. We don't change our strategy. We're still a platform company.” Zhang said.

Whether or not Alibaba’s investment will provide significant growth over the coming months has yet to be determined. What remains clear is that Alibaba’s investment should theoretically give the e-commerce giant a significant edge in the O2O market and streamline their growth in this sector.